God's Scammers

San Diego  Old-time religion and hard-time in prison seem to go together. Ask Pastor John Gillette of Shadow Mountain Community Church in El Cajon and Pastor Barry Minkow of Community Bible Church in Mira Mesa.

Both masterminded scams that made national news. After emerging from prison, both traded jumpsuits for ecclesiastical robes. There's a cynical old prison adage, "born again until out again," but thus far, neither manifest outward signs of recidivism.

Gillette made headlines in the late 1990s for fleecing professional athletes of more than $11 million. He told the jocks their money would go into conservative investments. Instead, it went into such things as a Ghana gold mine, San Diego office buildings, Junior Seau's Mission Valley restaurant, and Gillette's pocket.

Seau lost $1.5 million. A Dallas Cowboys player lost $3.7 million. In late January of 1998, Gillette was sentenced to ten years in state prison; he would have to serve at least five years, said the district attorney's office.

But in a surprise move initially opposed by the Department of Corrections, Gillette's sentence in late 2001 was reduced to 7I years. He was out by early 2002. Among other things, Gillette had cooperated with bankruptcy officials and attorneys in their recovery of $5 million of the $13.5 million restitution he owed, explained superior court judge Bernard Revak, who had scolded Gillette for losing his moral compass when sentencing him to prison. The D.A.'s office supported Revak's sentence reduction.

"No one had seen this done before," says Gillette.

Minkow's astonishingly brazen scam won him international infamy. Beginning as a teenager in a working-class Los Angeles suburb, he built a publicly held company, ZZZZ Best, that at one time had a market value of $240 million. He controlled 80 percent of that sum. He was only 20 years old. A wunderkind.

But a fraud. Ninety percent of the company's sales were fantasy. Employing a technique later used by San Diego's Peregrine Systems, he simply invented sales numbers. He claimed his company was restoring damaged buildings. Problem: the buildings didn't exist. At one point, an auditor insisted on seeing a restoration job. Minkow rented a building in San Diego and proudly showed the in-progress restoration to the accountants. Later, they wanted to see it again. Minkow sweated. But a crew toiled day and night for 20 days to put the building in shape. The ruse worked.

"It was like Enron's phony trading floor," says Minkow. He also played tricks with costs. Expenses that should have been recorded the year they were incurred were stretched out over many years. Later, that was one of WorldCom's ploys. "We inflated receivables and capitalized expenses. I was a double liar."

In financial trouble from the beginning, Minkow kited checks, stole and cashed Western Union money orders, and stole and hocked his grandmother's jewelry. He turned to mobsters for help. Eventually, Minkow and ZZZZ Best "for all practical purposes were wholly owned subsidiaries of the Genovese crime family in New York," says the redoubtable Christopher Byron, financial columnist for the New York Post and contributor to TV's MSNBC.

While it lasted, Minkow conned three accounting firms, Wall Street investment banking experts, and junk- bond king Michael Milken, who also wound up in the slammer. In retrospect, the numbers that Minkow manufactured were utterly absurd -- but this was during the bull market of the 1980s. No one could be bothered to look into fabricated numbers. (It got much worse in the 1990s.)

Eventually, the house of cards collapsed, and in 1987, at age 23, Minkow was sentenced to 25 years in the pokey. He spent 7H years at a prison for hardened criminals -- "It wasn't a country club," where most white-collar criminals go, he points out. While in prison he earned a college degree and a master's in church ministries and later got a master's of divinity.

Raised Jewish, he had converted to evangelical Christianity before going to the hoosegow, "but I knew I was going to prison," he says. He now spends 60 percent of his time at the church and 40 percent at his scam-fighting concern, the Fraud Discovery Institute. It puts on seminars for private groups and for government agencies such as the Federal Bureau of Investigation and also tries to expose ongoing scams. Recently, his institute was given credit for shining a light on alleged scams by Orange County's Financial Advisory Consultants and Riverside's MX Factors.

Having pulled a colossal fraud, Minkow understands the techniques and psychology of flimflam. (Franklin Delano Roosevelt appointed Joe Kennedy as head of the Securities and Exchange Commission in the 1930s. When told that Kennedy was an infamous stock-market manipulator, Roosevelt is said to have laughed, "It takes one to catch one.")

In 2002, the same Los Angeles judge who had once told Minkow, "You don't have a conscience," cut short his probation and relieved him of the obligation of paying $26 million in restitution. He still, however, pays a goodly sum each month to a California bank, his biggest victim.

He and his wife live modestly in Imperial Beach. He drives a 2001 Honda. They have recently adopted two Guatemalan children. One reason they have had difficulty having children of their own is that he abused steroids when he was a teenage wunderkind, admits Minkow, who still talks as rapidly as he did when he was cozening the investment community.

"I take full responsibility for my crime," says Minkow, and even hard-bitten columnist Byron believes him. "Barry is a polar opposite of Martha Stewart, who seems to be in the deepest denial of modern times," says Byron, whose book, Testosterone, Inc.: Tales of CEOs Gone Wild, a chronicle of recent business mischief, comes out next month.

Minkow personally likes and respects Gillette but laughs, "At least I was smart enough not to rip off Junior Seau."

Gillette can't say that. And he differs from Minkow in many ways. In particular, in selling his investment program, Gillette had always worn his religion on his sleeve. He led athletes in prayer sessions. At Gillette's sentencing, one young athlete said poignantly, "I'm a Christian. John looked me in the eye and said he lived by Christian values. He had a picture of Jesus as a judge on the wall." Then Gillette took the young man's money and diverted it.